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Summary
- Stocks in Canada rose sharply in October, generating the first positive month since February. The S&P/TSX composite index gained 5.61% last month. Foreign markets were even stronger with the S&P500 up 10.8%, Germany up 11.6% and Emerging Markets gaining 14.7%.
- The Canadian bond market fell in October as bond yields increased on stronger economic data. Longer term bonds dropped the most, falling 1.04% while the overall bond market in Canada had a -0.43% return last month.
- Commodity prices recovered along with the stock market in October as fears about a global recession abated due to stronger economic data, good corporate earnings and European debt deal. Crude oil (+17.7%) and copper (+15.2%) lead the advance as they are the most economically sensitive commodities.
- The Economic data was stronger than expected globally in October and started to put to rest some of the ‘double dip recession’ fears. U.S. and Chinese data in particular showed some strength versus expectations.
- In terms of stock sectors, the economically sensitive or ‘risk on’ groups lead the advance. Energy (+13.2%) and Industrials (+12.1%) lead the gains in Canada while Golds (+1.2%) and Financials (+1.8%) held back the overall market in Canada as those two sectors account for over 40% of the index.
- Our Stock Market Outlook remains extremely positive. Stocks are still reflecting a recession that has yet to occur and may not actually come about. Fears about slowdowns due to the Euro-zone financial crisis and additional worries about growth in China and the U.S. has created the lowest stock valuations in decades at a time when interest rates are at all-time lows (which historically supports higher stock valuations). Earnings growth remains positive, companies are flush with cash and the economic data has yet to show the slowdown feared by investors. Sentiment on stocks remains as bearish as it has been since the last market lows in early 2009. Such periods have always resulted in strong future stock prices and we continue to view current stock levels as a ‘generational buying opportunity.’ If the market continues to advance we could see some ‘panic buying’ into year-end as most pension funds and individuals remain substantially under-weighted in stocks while many hedge funds continue to hold significant short positions in the market which would need to be covered by additional purchases.